Tesla Shifts From Growth To 'Distressed-Credit' Story, Morgan Stanley Says
Tesla has entered a dangerous phase in its relatively short life, shifting from a company many believed had vast long-term growth potential to a “distressed-credit and restructuring” story, according to an influential Wall Street analyst
Morgan Stanley equity analyst Adam Jonas, a long-time Tesla bull who’s grown increasingly bearish, discussed concerns about the company in a nearly one-hour call with investors that was recorded and leaked online Wednesday. Issues include signs that demand for Tesla’s electric cars is slipping, sales in China may not be as robust as hoped and the upcoming Model Y crossover isn’t sufficiently compelling, along with ongoing cost and debt worries.
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As recently as late 2018, “Tesla was seen as a growth story,” Jonas said on the call. "Today, supply exceeds demand, they're burning cash. Nobody cares about the Model Y. … Tesla is not seen as a growth story, at least the feedback we were getting, which is quite one-sided ... it's seen more as a distressed credit story and restructuring story.”
The leaked comments come on the heels of a research note this week in which Jonas slashed his "worst-case" price for Tesla shares to just $10, which could be triggered by factors including missing estimated sales goals for China by as much as 50%. The stock plunged 6% in Nasdaq trading on Wednesday to $192.73, its lowest since December 2016. Tesla is down 42% this year.
The company didn’t immediately respond to a request for comment on the matter. Jonas’s comments were reported earlier by BusinessInsider.
Tesla fell back into the red in the first quarter, hit by lower than forecast deliveries of Model S, X and 3 electric cars. And while it has faced grim circumstances in the past, notably in late 2008 when the recession and financial market crash nearly drove it out of existence, CEO Elon Musk has generally maintained investor patience in the face of consistent annual losses in Tesla’s nine years as a public company.
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Vehicle sales “basically fell one-third sequentially from 4Q to 1Q ‘19, and if you annualize the 1Q results you get to around 250,000 units,” Jonas said. “That's more than 100,000 units below the low end of the company's 360,000 to 400,000 target for deliveries this year.”
And while Tesla has said it’s targeting sales of between 90,000 and 100,000 units in the second quarter, the “whisper” number “seems to be in the in the 70,000s, maybe mid- to upper-70,000s,” he said.
Jonas’s tough outlook also comes just after Tesla raised $2.7 billion this month in its latest debt and equity offering. Curiously, Morgan Stanley was among the investment banks participating in the sale of those offerings.
In his discussion, Jonas noted that Tesla passed up an opportunity to raise funds late last year when its finances briefly looked stronger. "We were thinking they would raise capital but felt there was a very high likelihood that there would be a strategic involvement, someone to fill the board, provide some know-how and some vision in addition to the Tesla vision."
Instead, “they are raising capital near the lows, no strategic buy-in," he said. "It was all institutional."
